Court allows appeal quashing CERA directive prohibiting a levy from being passed through to the electricity market.

THE SUPREME COURT

, 285/2011

Denham C.J.

Murray J.,

Hardiman J.,

Macken J.,

McKechnie J.

Between:

VIRIDIAN POWER LIMITED

and

HUNTSTOWN POWER COMPANY LIMITED

Applicants

and

COMMISSION FOR ENERGY REGULATION

Respondents

and

THE ATTORNEY GENERAL

Notice Party

JUDGMENT of Mr. Justice Hardiman delivered on the 23rd day of February, 2012.

This is the applicant’s appeal from the judgment and order of the High Court dated 23rd June, 2011, whereby they were refused the

relief they seek against the respondent, the Commission for Energy Regulation. The judgment of the High Court was that of Mr.

Justice Clarke.

Background facts.

The issues in this case require some understanding of the nature and history of the way in which electricity is generated, transmitted

and supplied in Ireland. In the following very brief account I have drawn extensively and gratefully from the judgment of the learned

High Court judge.

Before 1999 the generation transmission and supply of electricity in Ireland was a straightforward affair familiar in one degree or

another to most people. The E.S.B. (Electricity Supply Board) a public monopoly, generated transmitted and supplied electricity to all

customers in this jurisdiction. Northern Ireland had its own arrangements, not widely understood in this jurisdiction. More recent times

have seen dramatic changes in this area. There has been a previously unimaginable liberalisation in the market for the generation and

supply of electricity. This has happened in conjunction with the general liberalisation in many areas of economic activity which has

taken place under the influence of the European Union. The Electricity Regulation Act, 1999, as will be seen below, provides a system

of licensing of private electricity generators. The appellants in the present case are independent generators supplying electricity.

Subsequent to that development, a “single market” in electricity has been established. This parallels other single markets for

electricity which exist in the European Union area. Such single markets are of varying sizes. The single market of which this

jurisdiction is part consists of Ireland and Northern Ireland, a common all Ireland market.

The issues in this case cannot be understood without some appreciation of the nature of this market.

Since November, 2007, there has been a single market for wholesale electricity on the whole island of Ireland. A statute, the

Electricity Regulation (Amendment) (Single Electricity Market) Act, 2007 made provision for a cross-border regulatory framework

bringing together the Commission which is the respondent in these proceedings and its counterpart in Northern Ireland, the Northern

Ireland Authority for Utility Regulation. It was held in the High Court and has not been disputed that the Single Electricity Market or

“SEM” is in principle two separate committees of, respectively, the Commission and the Utility Regulator, but in practise consists of

the same people and operates as a single body.

This cross-border aspect of the market into which electricity is now sold is a matter of considerable importance to the issue in these

proceedings.

Both of the appellants have held generation licences from the Commission since before the inception of the single electricity market.

The terms of such licences and other associated documents, govern the basis on which generators such as the appellants are

permitted to “bid in” to the electricity market. In substance, the application of the bidding in mechanism determines the price which

the generators are paid. That mechanism will be considered in some considerable detail below.

The present litigation is a dispute which has arisen between the appellants on the one hand and the Commission on the other as to

one aspect of that mechanism. This aspect has its own background which it is not easy to state neutrally.

Emission trading allowances, often referred to as “carbon allowances” were issued under the provisions of the European Communities

(Greenhouse Gas Emission Trading) Regulations, 2004. These regulations transpose Directive 2003/87/EC (“establishing a scheme for

greenhouse gas emission allowances trading within the community”) into Irish law. This establishes a scheme of carbon allowances.

Entities, such as the generators of electricity involved in this action, who use up the resource of carbon to produce electricity must

have a carbon allowance to match their use of carbon resources. A market in those allowances has developed. By virtue of a decision

of the European Authorities, in the early years of that regime many carbon allowances were distributed free, though others had to be

purchased. All are now required to be purchased.

At one point, the availability to certain generators, to varying degrees, of “free” carbon allowances were regarded by the Regulator

and others as being in the nature of a “windfall” to the generators. This way of thinking is particularly clear in the submissions of the

Attorney General. It was not claimed that the generators had behaved in any way improperly. Nor was it claimed that they were

wrong to “bid in” the free allowances: indeed they were obliged to do so. But there is an inescapable suggestion in the Attorney’s

written submissions, and elsewhere, that it was legitimate to take steps to levy the revenues of the generators on this account. Mr.

Maurice Collins, for the appellants, pointed out that the term “windfall” occurs fourteen times in the submissions of the Attorney

General, and twenty-five times in the submissions to the High Court. But it was never claimed, and could not be claimed, that the Act

of 2010 which imposed the levy either constituted it as a levy on “windfall profits” or prohibited the “bidding in” of the levy in the

future on that basis.

To a very large degree, this point is now without relevance because of the unappealed finding of the learned High Court judge that

the rights and liabilities of the party are crystallised in the licence and the BCOP that other, more general, considerations whether of

policy, ideology, or matters that were “in the ether” around the time the 2010 Act was passed are now without relevance.

The applicants.

The first-named applicant, Viridian Power Limited (VPL) and the second-named applicant, Huntstown Power Company Limited (HPC)

are sister companies which own electricity generation plants in the Dublin area. Another company Viridian Energy Supply Limited

(VESL) is the trading arm of the Viridian group of companies. VPL and HPC are part of that group, which supplies services to them in

connection with their participation in the Single Electricity Market (SEM).

VPL and HPC operated under licences issued by the respondent, the Commission. Specifically, HPC has held a licence in respect of a

power station known as Huntstown 1 since 23rd August, 2000. The current version of that licence was annexed to a letter from the

Commission dated the 31st July, 2007, which has been exhibited in these proceedings.

VPL has held a generation licence in respect of Hunststown 2 from the Commission since the 28 May, 2007. Both these licences were

issued under s.14 of the Electricity Regulation Act, 1999. This licence has also been exhibited in the present proceedings, attached to

a letter from the Commission to VPL dated 31 July, 2007.

Private generators of electricity in this jurisdiction and in Northern Ireland are obliged to sell their electricity into the Single Electricity

Market (SEM). This market is highly regulated.

Central to these proceedings is the determination of the price of electricity supplied into that market. This is the price at which

electricity generators sell electricity to licensed electricity suppliers. These, in turn, sell it on to end users who include domestic

consumers. By virtue of the terms of the Single Electricity Market the market on the island of Ireland for the sale and purchase of

electricity, and the mechanism for determining its price, is regulated jointly by the respondent Commission and the Utility Regulator

under the Single Electricity Market. This came into operation on 1 November, 2007.

A key feature of the SEM is a Mandatory Gross Pool into which, with irrelevant exceptions, all electricity generated on the island of

Ireland or imported into it, must be sold and from which wholesale electricity for consumption, or for export, must be purchased.

Of particular relevance to this case is one of the principles of the SEM design: that bidding for sale into the market by electricity

generators would take place at the Electricity generators’ marginal cost, to ensure efficient price formation. It is also a principle of

the SEM that competition between generators should, all other things being equal, lead to lowest cost production.

The underlying principles of the Single Electricity Market, including the principles that bidding by generators would take place at

marginal cost to ensure a sufficient price formation, were set out by the regulatory authorities in a consultation paper entitled “The

Single Electricity Market - Proposed High Level Design”, which was offered in evidence in these proceedings, as follows:

“The creation of a gross mandatory pool, where economic rationale suggests that bidding takes place at

marginal cost, will also serve to deliver efficient price formation. Competition between generators for

despatch, combined with a financial contracts market with suppliers, should, all other things being equal, lead

to lowest cost production”.

The licence under which the applicants operate will be discussed in some detail below. For the purposes of this summary it is

sufficient to note that the price elements of the offer, or “bid”, which each electricity generator must make for the sale of its product

into the SEM are not at the generators’ discretion. Instead, the price is required to reflect the Short Run Marginal Cost of the

generator. That is, in the language of the licence, the prices required to be “cost reflective”. Thus, the generator is prohibited from

bidding at a price which either exceeds, or is lower than, its Short Run Marginal Cost. This is the effect of Condition 15 of the

standard licence to generate electricity.

There is also another document said to be relevant to the price at which generators bid the price of the electricity. This is the Bidding

Code of Practice (BCOP). This was published by the Commission and the Utility Regulator in July, 2007. This will also feature

extensively in the discussion below.

The issue in the case.

On the 29th June, 2010, both Houses of the Oireachtas passed the Electricity Regulation (Amendment) (Carbon Revenue Levy) Bill

2010. It was signed into law by the President the following day. It came into effect immediately. The Act imposes a levy on the

generation of electricity involving the use of fossil fuels, calculated in accordance with a formula which is set out in the Act. This Act

applies, naturally, only in this jurisdiction. There is no such levy in Northern Ireland, the other participant in the S.E.M., whose

territory is part of the all Ireland extent of that market.

This levy is extremely significant financially and the Court was told, without dispute, that the cost of the levy for these applicants is

about €18 million per annum.

The issue in the case can be stated quite simply:

“Is the amount of a carbon levy a cost which the applicants are entitled to take into account in calculating

the price at which they bid for the supply of electricity?”

Each applicant takes the view that it is such a cost and propose to construct its bid accordingly. This is described in industry

language as “bidding in”. The Commission takes the view that it is not such a cost and therefore cannot be included in the calculation

of the bidding price. Moreover, the Commission has purported to issue directions to each of the applicants requiring them not to

include the cost of the levy as part of their bidding price. The applicants seek to quash these directions, and certain other relief.

The Licence.

As mentioned above, the licence is a common form licence issued under a statutory power which will itself be considered below.

Accordingly, in quoting the licence for present purposes, and in the interest of clarity, I propose to quote only what appears to me to

be the significant portions of the licence, indicating omissions in the usual way.

Condition 15, paragraphs 1 - 6, of the licence provide as follows:

“Condition 15: Cost Reflective Bidding in the Single Electricity Market.

(1) The licensee shall ensure that the price components of all commercial offer data … in relation to a

generation unit for which the licensee is the licensed generator, are cost reflective.

(2) For the purposes of this condition, the price component of any commercial offer data shall be treated as

cost reflective only if, in relation to each relevant generation unit, the Schedule Production Cost related to

that unit in respect of the Trading Day to which the commercial offer data submitted by … the licensee apply

is equal to the Short Run Marginal Cost related to that generation unit in respect of that Trading Day.

(3) For the purposes of paragraph 2, the Short Run Marginal Cost related to a generating unit in respect of a

Trading Day is to be calculated as

(a) The total costs that would be attributable to the ownership, operation and maintenance of

that generation unit during that Trading Day if the generation unit were operating to generate

electricity during that day;

MINUS

(b) The total costs that would be attributable to the ownership, operation and maintenance of

that generation unit during that Trading Day if the generation unit was not operating to generate

electricity during that day.

the result of which calculation may either be a negative or a positive number.

(4) For the purposes of paragraph 3, the costs attributable to the ownership, operation and maintenance of a

generation unit shall be deemed, in respect of each relevant cost item, to be the Opportunity Cost of that

cost item in relation to the relevant Trading Day.

(5) The Commission may publish … a document to be known as the Bidding Code of Practice which shall have

the purposes of:

(a) Defining the term Opportunity Cost

(b) Making provision, in respect of the calculation by the licensee and other generators of the

opportunity cost of specified cost items for the treatment of

(i) The cost of fuel used by generators in the generation of electricity;

(ii) The value to be attributed to credits issued under the Emissions Trading Scheme

established by the European Commission;

(iii) Variable operational and maintenance costs;

(iv) Start up a no load costs;

(v) Any other costs attributable to the generation of electricity.

(c) Setting out such other principles of good market behaviour as in the opinion of the Commission

should be observed by the licensee and other generators in carrying out the activity to which

paragraph 1 relates.

(6) The licensee shall in carrying out the activity to which paragraph 1 refers, act so as to ensure its

compliance with the requirements of the Bidding Code of Practice and any directions issued under it.

(Emphasis added)

The Bidding Code of Practice

The relevant portions of this document are paragraphs 6 - 8. These provide:

“(6) When calculating the Short Run Marginal Cost of a generation set or unit in respect of a Trading Day,

constituent cost items are to be valued at their opportunity cost…

(7) The Opportunity Cost of any cost item shall comprise the value of the benefit foregone by a generator in

employing that cost-item for the purposes of electricity generation, by reference to the most valuable

realisable alternative use of that cost-item for purposes other than electricity generation.

(8) In calculating the value of the benefit foregone in employing a cost-item for the purposes of electricity

generation, the following principles shall, unless it can be demonstrated to the satisfaction of the authority or

the commission… that there is good cause not to, be applied:

(i) Where exists a recognised and generally accessible trading market in the relevant cost-item,

the Opportunity Cost of that item should reflect the prevailing cost of the cost item, which may

be for immediate or future delivery or use as appropriate to the circumstances of the relevant

generator having regard to:

(a) Costs the relevant generator would incur in offering that cost-item for sale, or

acquiring that cost-item on a recognised and generally accessible trading market;

(b) Reasonable provision for the variability of the prevailing price of a cost-item on a

recognised and generally accessible trading market;

(ii) Where no recognised and generally accessible trading market exists in the relevant cost-item

the opportunity cost of that item should reflect the costs which would be incurred by the relevant

generator in replacing that cost-item; and

(iii) Reasonable provision for increased risk to plant and equipment as a result of the operation of

a generation set maybe included.

Statutory background.

The construction of the licence, as we have seen, lies at the core of the present appeal. However it may be important to bear in mind

the statutory background of the licence itself, which is to be found in the Electricity Regulation Act, 1999. Section 14 of that Statute

insofar as relevant provides:

PART III

Licences and Authorisations

Licences to

generate and supply

electricity.

14.—(1) The Commission may grant or may refuse to grant to any person a licence—

(a) to generate electricity,

(b) to supply electricity to eligible customers,

(c) subject to section 28, to supply electricity to final customers which in aggregate does not

exceed the amount of electricity which is available to the supplier and which is produced using

renewable, sustainable or alternative forms of energy or electricity purchased, in place of such

electricity, in accordance with the trading arrangements provided for in regulations to be made by

the Commission under section 9(1)(d), or

(d) to supply to the single premises of the main heat customer electricity which is produced using

combined heat and power at the generating station from which that main heat customer is

supplied with heat, or electricity purchased, in place of such electricity, in accordance with the

trading arrangements provided for in regulations to be

made by the Commission under section 9(1)(d),

on such terms and conditions as may be specified in the licence.

(2) The Commission may grant to the Board a licence to supply electricity to eligible customers, subject to

terms and conditions as may be specified in the licence.

(3) Any licence granted under this section shall be deemed to contain a condition that it shall be subject to

modification for the purposes of compliance with any enactment implementing, whether in whole or in part,

Council Directive No. 96/92/EC of the European

Parliament and of the Council of 19 December, 1996 concerning common rules for the internal market in

electricity.

(4) An application for a licence under this section shall be in writing and be in such form and contain such

information as the Commission may request.

(5) An application for a licence under this section shall be

accompanied by such a fee, if any, as the Commission may determine to be appropriate, having regard to the

application being made, and the Commission shall make information on such fees available on request.

(6) A licence granted by the Commission shall be subject to—

(a) modification in accordance with section 19, or

(b) revocation by the Commission in accordance with this Act.

(7) Where the Commission refuses to grant a licence to a person—

(a) the person shall be notified, in writing, by the Commission of the reasons for the refusal,

(b) within 28 days of the making of a refusal, the Commission shall notify, in writing, the

Commission of the European Communities of the reasons for the refusal, and

(c) the person may appeal the refusal in accordance with section 29.

(8) The holder of a licence granted under paragraph (a) of subsection(1) may supply electricity to the holder

of a licence granted under paragraph (b), (c) or (d) of that subsection or to the Board.

(9) A licence granted under paragraph (b), (c) or (d) of subsection(1) shall not authorise the supply of

electricity to an eligible customer or final customer until after the 19th day of February, 2000.

(10) For the purposes of subsection (1), ‘‘main heat customer” means a person who has entered into a

contract with a producer of combined heat and power to purchase, in a calendar year, an amount of heat

produced by that producer, which amount of heat is greater than that contracted to be purchased in that

year from that producer

by any other person (if any).

(11) The Commission shall monitor licensees to ensure that they continue to conform to all the conditions and

requirements of their licences.

(12) The Board shall be obliged to supply electricity to the holder of a licence under subsection (1) in

accordance with the trading arrangements provided for in regulations to be made by the Commission under

section 9(1)(d).

It should be noted, though there is no need at present to set out the power, that a licence may be modified or amended under the

terms of s.19 of the Act, but that this may be subject to the process of notification, representation or objection, consideration of

such representation or objection set out in s.20 of the Statute.

The Levy.

The Electricity Regulation Amendment (Carbon Levy) Act, 2010, generally referred to as the Carbon Levy Act, inserts a new part VIIB

into the Electricity Regulation Act, 1999. Section 40B of this Act, part of the insertion, defines the levy by requiring generators to pay

to the Commission a levy based on carbon emissions calculated by multiplying the amount of emissions (“E”) of each operator, in

tonnes of carbon dioxide equivalent by the average price (“P”) of the allowance for one tonne of carbon dioxide equivalent, then

further multiplied by a percentage (“X”) which is currently 65% but may vary.

The long title of this Act may be relevant:

“An Act to provide for the imposition of a levy to be known as the Carbon Revenue Levy on such amount of

the Revenues received by certain electricity generators, through participation in the single electricity market,

as is attributable to the emissions from each installation of which an electricity generator is the operator; to

confer functions on the Commission for Energy Regulation in respect of the collection and recovery of the

levy; to provide for the manner on which the levy proceed shall be administered; for those purpose to amend

and extend the Electricity Regulation Act, 1999 and to provide for related matters.” (Emphasis supplied)

It may be noted that, despite the reference to the single market no levy or charge of the sort prescribed by the 2010 Act has been

imposed in Northern Ireland.

The actual obligation to pay the levy is contained in s.40D of the 2010 Act. This provides at subsection 1, insofar as relevant:

“Each electricity generator shall, subject to and in accordance with this Part and any Regulations made under

this Part, pay to the Commission, in respect of the immediately preceding levy period, a levy (in this Part

referred to as the ‘Carbon Revenue Levy’) on such amount of the revenues received during that levy period by

the electricity generator through participation in the Single Electricity Market, as is attributed to the

emissions from each installation of which the generator is the operator, which amount is calculated in

accordance with a formula

E x P…”. (Emphasis supplied)

It will thus be observed that the levy was imposed just over a decade after the earliest of the licences in question here was issued

and that the licence itself was not modified or amended to make reference to the levy. Nor was the point at issue in this case -

whether or not the cost of the levy can be “bid in” as part of the generator’s short term marginal cost - addressed at all in the 2010

Act. Instead the authorities have relied on the proposition that the licence and where relevant the BCOP, properly construed, already

prevent the bidding in of the levy. But the levy post-dates the Licence and the BCOP.

The High Court decision.

One of the authorities’ contention was successful in the High Court. The substantial reason for this was that the learned trial Judge

held that the levy could be bid in only if it could be regarded as having an “opportunity cost” within the meaning of the BCOP. He

went on to find that the levy did not have such an opportunity cost because it was not “employed” in the generation of electricity,

again using that term in the meaning of the BCOP. These findings will be analysed in some detail below.

However, prior to reaching that stage, the learned trial Judge made several findings which favoured the applicants and which were

strongly relied upon by them on the hearing of this appeal. These were not the subject of any cross appeal. Since they set out in

short compass and with admirable clarity some central findings which appear to be agreed by both sides, I rehearse some of them

here.

Firstly, the learned trial Judge held that the levy is a “cost” in the ordinary sense of that word. He said, at para. 7.13:

“That the levy is a cost in the ordinary sense of that word can hardly be doubted. It is not possible to

generate electricity using fossil fuels… without incurring the levy which is directly proportionate to the amount

of fuel used and, thus, to the amount of electricity generated. The levy is, undoubtedly, therefore, a cost

attributable to the operation of the plant.”

The significance of this finding will be clear when the submissions of the Attorney General and the Commission are considered, below.

Secondly: other findings of the learned trial Judge relate to the correct legal approach to the resolution of this case. Many of these

are no longer strictly relevant because of the absence of a cross appeal but are important in throwing light on the authorities case as

it was argued in the Court below and reveals the mindset which informed the decision to issue the Directions. Thus, having stated the

core issue in words considered below, the learned trial Judge held at para. 7.14:

“However, before addressing that core question I should note that much mention was made in the course of

the hearing and in the affidavit evidence filed (including the expert evidence) of terms such as real resource

costs, public, private and social costs. That those terms formed part of the thinking of the Commission in

determining on the regime to be applied cannot be doubted from the evidence, and the documents which

were published by the Commission in the run up to a final decision being taken on the structure of the regime

concerned. However, the important point to note is that those terms did not find their way into the licence.

The Commission decided on the terms of the licence. The Commission chose not to include terms such as real

resource cost in the licence. The legal rights and obligations of all parties crystallized when the Commission

issued licences in the form in which it did. To attempt to import terms and concepts which were undoubtedly

‘in the ether’ as the Commission formulated its proposals into a formal licence where the Commission chose not

to include these terms would in my view be to place the cart before the horse. It would be to place context

in front of the terms of the legally binding document. There is nothing, therefore, in my view in that evidence

which could legitimately lead, in the circumstances of this case and in respect of the terms whose

construction I have to determine, to moving away from the definitions of the terms in issue as set out in the

licence and the BCOP.” (Emphasis added)

The significance of this finding may not be apparent from a consideration only of the arguments advanced on the hearing of this

appeal. But at an earlier stage of the case, the reliance on terms, and on considerations, which were not stated in the licence, but

were allegedly “in the ether” was a significant feature. Thus, in the letter of the 8th October, 2010, containing the direction to which

the appellants in the present case take exception, the reasons for the decision to issue the direction are set out in the annex to the

letter, a document which makes plentiful reference to policy considerations including the need to align physical generation decisions

“with real resource costs”.

Equally, in the argument on this appeal Mr. Michael Collins S.C. for the Regulator found it necessary to distance his argument from his

client’s own letter of the 10th October, 2009, which had stated that “on a simple reading” of the documentation, the appellant’s

contention was correct. Mr. Collins said that his reasons for “withholding complete agreement” from that letter was that “in the

licence there is a special definition of opportunity cost which was chosen to reflect certain policy objectives”.

The learned trial judge’s un-appealed findings in this respect - notably that the legal rights and obligations of all parties crystallised

when then Commission issued licences in the form which it did - may have a particular continuing relevance in relation to the

submissions of the Attorney General on this appeal. These will be further described below but they are conspicuous for their emphasis

on the “context” in which the Carbon Revenue Levy Act, 2010, is said by the Attorney General to have been enacted. This “context”

is not immediately apparent from a perusal of the Act itself. The submissions on behalf of the Attorney General also suggests that this

“context” suggests a purpose for which the levy was imposed, by a process of inference from certain aspects of the Act, though not

from any explicit statement therein. The Attorney General goes on to submit that “it is legitimate for regard to be had to the nature

and purpose of a measure when determining - as a matter of documentary interpretation - how the measure ought to be construed”.

Thirdly, the learned trial Judge dealt with a contention on the part of the authorities that the licence conferred on the Commission a

power of interpretation, which is in the nature of a discretion. The significance of this is that such a power, according to the

Commission, would require to be reviewed on a criterion of reasonableness. That is to say the applicants would have to establish the

unreasonableness, as that term is understood in law, of the direction. The alternative view is that the standard of review is one of

correctness which is a lower hurdle for the applicants to surmount. The learned trial Judge held at para. 6.2:

“… there is nothing in the language of Condition 15.7 which suggests that the Commission is given any power

of interpretation of the licence.”

Equally, at para. 6.5 the learned trial Judge held:

“… it seems to me that there is nothing in the licences from which it can be inferred that the Commission is to

be given any power of interpretation over the terms of the licence which is material to this case. In those

circumstances it seems to me that, subject to the point just mentioned, the proper standard of review is that

of correctness.”

The ratio of the High Court’s decision.

The ratio of the High Court’s decision appears to me to be set out at para. 7.13 - 7.17 of the judgment. This passage starts with the

passage, already quoted, to the effect that the levy is a cost of generation in the ordinary sense of that word and moreover is a cost

attributable to the operation of the plant, and one directly proportionate to the fuel used and thus to the electricity generated. It

seems to me to follow from this that it not merely a cost but a short-run marginal cost.

But the learned trial judge went on to hold, in the same paragraph that:

“The real question is as to whether the levy has an opportunity cost as defined in the BCOP for if it has not,

then it is not the sort of cost which the definition in the licence and the BCOP allows to be included in the

calculation.”

The learned trial Judge then proceeded at para. 7.17 to find:

“The principal definition provision of the BCOP concerning opportunity cost is to be found in paragraph 7. That

paragraph speaks of ‘employing’ a cost item for the purpose of electricity generation. It seems to me that

counsel for the Commission was correct when he suggested that the wording of that paragraph necessarily

implies that the cost item is an input into electricity generation. It is only inputs that are employed in the

generation of electricity. A levy which arises incidental to the generation of electricity is not, in itself,

employed for the purpose of electricity generation, neither is it a tax or levy on other items which are

themselves employed in electricity generation”.

This, then, in two short paragraphs, is the nub of the High Court’s findings. It represents the central issue to be determined on the

hearing of this appeal. It is, however, first necessary to consider the contentions of the parties.

Submissions of the parties.

I propose to commence with the contentions of the Respondents, because there is no dispute but that the levy is a cost of

generation as that word is ordinarily used. It was, therefore, for the respondents to establish the particular, artificial, meaning

whether set out in the BCOP or otherwise which, they say, takes that cost out of the category of short term marginal cost for

present purposes.

The Regulator’s Case.

Mr. Michael Collins S.C. for the Regulator, made submissions which fully acknowledged and indeed embraced the very narrow ground in

which his client’s case was based. As noted above, he started by distancing himself from his client’s own letter of the 10th October,

2009, which conceded that “on a simple reading” of the documentation the appellants case was correct, i.e. the applicants cost was

capable of being “bidded-in”.

He then emphasised to the Court, as a matter of considerable importance that neither the word “cost” nor the phrase “cost

reflective” was defined in the documentation.

He then announced four propositions the first three of which appear to favour the appellants but the last of which, in Mr. Collins’s

submission, supports the view that the cost is not “biddable in”. These propositions were as follows:

“(1) Firstly, the levy is a cost of generating electricity in the ordinary meaning of that word.

(This proposition appears to be a concession but is one which was absolutely necessary to make. It was also

reflected in the findings of the learned trial judge from which the Regulator brought no cross-appeal).

(2) Secondly, the term “cost reflective”, is not a meaningful term without a definition of “cost”.

(3) Thirdly, the levy is a cost, which is reflective of the electricity produced.

BUT

(4) Fourthly, it [the levy] is not within the definition of short-term marginal cost”.

Mr. Collins conceded that Condition 15(1) in the licence obliges the licensee to bid in a “cost reflective way”. He further conceded

that the cost in question was the cost of the generator who was making the bid. But, he said this does not mean that all costs must

be included.

This proposition is one of great importance. Mr. Collins argument was that the combined effect of the licence and the BCOP was that

although the generator was obliged to bid in a “cost reflective way”, and include his “total costs”, not all costs need be, or can be,

included. This has the consequence that some costs can be excluded so that, to that extent the bid need not be cost reflective.

From the terms of the licence set out above, it will be recalled that “the price component of any commercial data shall be treated as

cost reflective:

“… only if… the Schedule Production Cost related to that unit… is equal to the Short Run Marginal Cost related

to that generating unit in respect of that trading day”. (Licence, Condition 15, para 2)

The short-run marginal cost is itself required to be calculated as “the total costs that would be attributable to the ownership

operation and maintenance of that generation unit during that trading day if the generation unit were operating to generate

electricity during that day”, minus certain fixed costs. Accordingly, the Regulator’s case involves the proposition that the phrase

“total costs” need not include all costs or include every cost item.

Mr. Collins conceded that the word “total cost” meant all the costs of operating the electricity generation facility and further

conceded that “if the construction exercise stopped at that point then ‘it means what it says’ and it includes the levy”.

However, Mr. Collins placed considerable emphasis, indeed crucial emphasis, on para. 15(4) of the licence which said that the costs

attributable to the ownership etc. of a generation unit shall be “deemed, in respect of each relevant cost item, to be the opportunity

cost of that cost item…”.

This deeming provision, he said, was the engine of the exclusion of some costs from the apparently all-inclusive category “total

costs”.

He pointed out that by virtue of Condition 15(5) the Commission could publish a bidding Code of Practice which, inter alia, could

define the term “opportunity cost” and refer in particular to the terms of paragraph 8 of the BCOP in this connection.

In another central submission, Mr. Collins stated that “opportunity cost” may be different from “actual cost”.

Asked whether the relevant paragraphs of the BCOP did not relate to a mode of establishing the value of an input rather than a

definition of which items were biddable in, Mr. Collins submitted that the relevant provisions related to both of the meaning of the

phrase and to the calculation of the value to be attributed to it.

Mr. Collins submitted that “opportunity costs” meant no more and no less than “value foregone”. He submitted that the licence, in

particular Condition 15 thereof and the relevant provisions of BCOP meant that “only opportunity cost can be claimed” i.e. only

opportunity cost can be bidded-in, even if the actual cost is greater. However it appears in the overall context of the case that Mr.

Collins also meant that only something which had an opportunity cost could be claimed at all, and that the financial value of the claim

could only be the value of its opportunity cost.

Mr. Collins submitted that this was so in the ordinary meaning of the words used.

Returning to the extremely subtle argument whereby the levy was admitted to be a cost, but denied to be a biddable cost, Mr. Collins

used two other phrases. He said that the levy was a cost only in the “Clapham omnibus” meaning of the term and also in the “Profit

and Loss Account” meaning, but not in the special meaning to be used in this case, arising from the terms of the licence and the

BCOP. This seems at variance with the submission noted in the previous paragraph above.

Continuing this extremely subtle, almost ineffable characterisation of the nature of the “levy” Mr. Collins said that the levy was not an

input into the generating process. Rather, it was a component of the input known as “fuel”.

Mr. Collins submitted that the terms of the licence itself excludes the levy. He said that the levy was not a “cost” but merely a

“Clapham omnibus” or “profit and loss cost”. He said that the short-run marginal cost (SRMC) is calculable only on the basis of

opportunity cost. In answer to a specific question, he said that he would go so far as to say that it was clear that the terms of the

licence excluded the levy as a cost.

Turning to the BCOP, Mr. Collins submitted that the levy was not within para. 8(1) or para. 8(2) then “it’s not a cost”. Equally, he said

if the levy was not capable of having an opportunity cost, it was not a short-run marginal cost. Varying this slightly, perhaps, Mr.

Collins submitted that the levy might in theory be a cost item but if it has no opportunity cost “it doesn’t count”.

Equally, Mr. Collins contended that the generators “total cost” does not include the levy. He said there was nothing wrong in reading

“total cost” as meaning merely “opportunity cost”.

When Mr. Eoin Carolan for the Attorney General had concluded his submissions, Mr. Collins made a further lengthy interjection. This

was the subject of very strong objection by Mr. Maurice Collins S.C. for the appellants on the basis that the Commission’s submissions

had been concluded. But it seems reasonable to take account of what Mr. Michael Collins said on that occasion since it was in fact

heard.

He first said that the main cost which was properly “bidded-in” was fuel. Fuel was “bidded-in” at a cost which included Value Added

Tax or Excise Duty, as appropriate. He said that other items which were “bidded-in” were maintenance costs and certain wages.

Mr. Michael Collins, in a central passage, then went on to submit that there was an important distinction to be drawn between two

cognate things which he identified as “the levy itself” on the one hand and “the cash used to pay the levy” on the other.

It appears that this related to a significant part of Mr. Carolan’s submissions, set out below. Mr. Michael Collins illustrated the

distinction he was making by submitting that the levy “has no existence until after generation has taken place”. It is therefore not a

cost of generation.

The point of this submission, which it is fair to say Mr. Michael Collins advanced with considerable vehemence was that, as he put it:

“The cash used to pay the levy has an opportunity cost. But the levy itself does not have an opportunity

cost.”

This, then, is the crux, the pons assinorum, of the Regulator’s case. There is a distinction between “the levy itself” and “the cash

used to pay the levy”. The latter, Mr. Collins concedes, has an opportunity cost, but the former does not. On the correct

construction, in Mr. Collins view, of the licence and the BCOP only cost items having an “opportunity cost” may be bidded-in.

It appears to me to be a significant concession to agree that the cash used to pay the levy has an opportunity cost. It may be that

this concession was forced on Mr. Collins by the fact that it was admitted that the VAT and Excise Duty on fuel is correctly bidded-in

and therefore, in the Regulator’s view, must have an opportunity cost. Once this is conceded, it is difficult to treat the levy

differently.

In a supporting submission, Mr. Michael Collins relied on para. 7 of BCOP and the use of three particular phrases, “cost item”;

“employed”; and “opportunity cost”. He repeated his submission that it was the opportunity cost, and not the actual cost of

permitted items which is permitted to be bidded-in. The levy was not a permitted item and did not have an opportunity cost,

considered as a thing in itself.

Submissions on behalf of the Attorney General.

A significant portion of the submissions on behalf of the Attorney General, which did not take sides in the issue between the parties,

were lacking in relevance to the present appeal. Another portion of them, in relation to the Attorney General’s view of certain

contextual factors, seem to have lost relevance by reason of the un-appealed findings of the learned trial judge which have been

quoted above, and those submissions have been addressed in that context. But there are two other aspects of the submissions

addressed to this Court on behalf of the Attorney General by Mr. Carolan which are highly relevant. The first is the terse but

significant submission:

“My whole point is, the levy is a levy on revenue and not a levy on carbon”.

As noted above it appears to have been this submission which led to Mr. Michael Collins’s striking distinction between the levy itself,

which he said had no opportunity cost, and the “cash used to pay the levy” which he conceded did have an opportunity cost.

The second significant submission of Mr. Carolan was previously addressed in his written submissions under the title:

“If this was the Oireachtas’s intention, why did it not choose a different course of action?”. (sic)

This is a coy way of raising the issue, why the Oireachtas did not provide by statute or by an amended BCOP, for the result it

desired, if it desired it?

Having raised this question, Mr. Carolan first queried whether the appellants’ submission, which drew attention to the fact that the

Oireachtas had failed to specify in the Act of 2010 whether the levy was or was not a reckonable cost and could or could not be

“bidded-in” either by amending the Bidding Code of Practice or otherwise, “arguably fail[ed] to show adequate respect for the

Oireachtas’s freedom to legislate in the manner it deems most appropriate”.

Having said this however Mr. Carolan went on to say that

“the Bidding Code of Practice (BCOP) applies to the Single Electricity Market (SEM). This is a multi-jurisdictional market which the

Oireachtas cannot regulate by unilateral means. It is clear from the manner in which the Act is framed, that the Oireachtas was

careful to avoid in any way impacting on the Bidding Code of Practice or the SEM pricing mechanism. By purposely not addressing the

source of the windfall revenues… but instead providing for the recovery of a portion of those windfall revenues after they had been

received through participation in SEM, the Oireachtas respected the special multi-jurisdictional nature of the SEM and the

independent decision making of the SEM Committee in relation to SEM matters.”

As will be apparent, this is a submission of the greatest importance. First of all it provides an insight into the Authorities views of the

importance of the levy being a levy on revenue, and not on carbon. Secondly, it states quite expressly that it is beyond the power of

the Oireachtas to regulate the “multi-jurisdictional market” that is the SEM unilaterally. It has already been seen that no bilateral

action has been taken on this matter since there is no Carbon Revenue levy in Northern Ireland.

These submissions will be further considered in the context of the submissions of the other parties, below.

Submissions of the Appellant.

On behalf of the appellants, the fundamental position of Mr. Maurice Collins S.C. was that the levy was admittedly a cost; it was

admittedly, or at least necessarily, a short-run marginal cost. It was therefore part of the generators’ “total cost” and his “bid” was

required to be “cost reflective” on the basis of his “total cost”. He pointed out that, by virtue of the terms of Condition 15, that

bidding in price must be equal to the short-run marginal cost i.e. neither greater nor lesser than that sum. If, therefore, said Mr.

Maurice Collins, the bidding in price is less than the actual short-run marginal cost, then it is not in compliance with the licence

because the price is required to be equal to that cost.

He said that the BCOP does not require that only costs which have an opportunity cost may be recovered. On the contrary, it

provides that the costs attributable to the ownership, operation etc. of a generation unit are deemed to be the opportunity cost of

the relevant costs item. This, he submitted, is not a definition, but a mode of computation. The fact that the quantification is

achieved by valuing the opportunity cost is a “subsidiary concept and cannot justify the removal of something which is an actual cost

item from the short-run marginal cost”.

It is fair, I think, to say that Mr. Maurice Collins poured scorn on certain of the submissions of the Regulator. He characterised them

as amounting to a submission that the levy “is a pure liability” and is “disconnected from the cash which discharges it”, and is

therefore “not a cost of generation”. Mr. Maurice Collins took a stand on the fact that the learned trial judge had held, and the

Regulator had accepted, that the levy was a cost. He asked, why did the learned trial judge find it was a cost and answered, by the

citation from the judgment given above, that that finding was made because the levy was unavoidable if one wished to generate

electricity by the use of fossil fuels.

Mr. Collins repeated, several times, that if you are a fossil fuel generator of electricity in Ireland, selling into the single electricity

market, you cannot avoid the cost represented by the levy.

He said that the liability for that cost “is directly and in a linear way related to emissions”. It is therefore a marginal cost.

Mr. Maurice Collins submitted that the levy in no way resembled corporation tax, which had been mentioned by Mr. Michael Collins, as

it made no provision for the set off of losses from taxable revenue and, unlike a tax, was linked to a specific input i.e. the emissions

from a greenhouse gas as defined in Regulations of 2004.

Mr. Maurice Collins emphasised the statutory formula for quantifying the amount payable by way of levy and said that the element E

for emissions is the only constant specific element of the formula. The element described as P for price is an average price and

therefore unspecific.

On this basis, Mr. Collins denied that the levy was a levy on revenue. It is most obviously, or at least equally, a levy on carbon use.

Comment and Conclusions on Submission.

I must first record that I cannot attach the significance Mr. Michael Collins asked us to attach to the absence of definition of the

term “cost”.

All laws are expressed in words and words sometimes are given special meanings, which themselves must be expressed in words. This

familiar aspect of legal and judicial practise depends upon there being some words whose meaning is quite plain and I believe that

“cost” is one of these. It falls to be construed by us in its ordinary and natural meaning and few, I believe, will quarrel with the

ordinary and primary meaning of the word which I take from the Oxford English Dictionary as follows:

“That which must be given or surrendered in order to acquire, produce, accomplish or maintain something; the

price paid for a thing”.

There are other words which are important either because they are used in the documents produced in this case or because they are

relevant to other words which are so used. Prominent amongst these is the word “total” as in the phrase “total costs” which appears

in Condition 15(3)(a) of the appellants’ licences.

From the same source quoted above one receives the unsurprising information that “total” used as an adjective (as it is in the

licence) means:

“Of, pertaining, or relating to the whole of something; constituting or comprising a whole; whole, entire.”

Having regard to these unchallengeable definitions it will be seen that it is not easy to argue that the phrase “total costs” does not

include “all costs” of the same kind.

I now turn to certain submissions about the “levy” itself. Two of these are particularly striking and memorable. They relate, of course,

to the Carbon Revenue Levy. The two submissions are:

Firstly, that the levy is a levy on revenue and not on carbon.

The second is a submission that there is distinction to be drawn between the levy as a thing in itself, which has no opportunity cost,

and the cash used to pay the levy which (it is conceded by the respondents) has such a cost.

The levy in question in this case is wholly a creature of statute, and that statute is the Electricity Regulation Amendment (Carbon

Levy) Act, 2010.

The obligation to pay the levy is contained in s.40B which has already been quoted. It provides that:

“Each electricity generator shall, subject to and in accordance with this Part and any Regulations made under

this Part, pay to the Commission, in respect of the immediately preceding levy period, a levy (in this Part

referred to as the Carbon Revenue Levy) on such amount of the revenues received during that levy period by

the electricity generator through participation in the Single Electricity Market, as is attributed to the

emissions from each installation of which the generator is the operator, which amount is calculated in

accordance with a formula E x P…”. (Emphasis supplied)

The long title of the Act, also quoted above, is quite consistent with this provision.

Firstly, it is not without significance that the levy is to be known as the Carbon Revenue Levy. It appears to me that neither of the

first two words of this phrase can be ignored. Secondly, the levy is calculated by a formula which, consistent with the title of the

levy itself, measures and treats both emissions (as identified in certain regulations) and price.

Where I find it impossible to accept Mr. Carolan’s submission is its insistence that the levy is in no way a levy on carbon. That is not

the case. It is not the case either that the levy is exclusively a levy on carbon. It is a levy on carbon and on revenue, calculated in

accordance with a specific formula. If there were no carbon there would be no liability to the levy. Put another way, the revenue

which is levied is revenue attributed to emissions. One cannot ignore the fact that this is, by statute, a carbon revenue levy, and not

simply a levy on the revenues of certain companies.

Nor, in my opinion, can it be said that there is a meaningful, or even a rational, distinction to be drawn between the levy as a thing in

itself and the cash used to pay the levy. The levy simply does not exist apart from the cash expression of it. The levy is not a

metaphysical entity which maintained some shadowy existence, pre-existing the Act of 2010: it is wholly and entirely a creation of

that Act: there is no aspect of the levy which is not a creation of the Act. Moreover, the levy is composed as I have already outlined

partly by reference to a price (naturally expressed in cash) and partly in relation to emissions. The formula whereby it is calculated

yields a liability in cash and not otherwise. If one is liable to pay the levy, one is liable to pay it in cash, and not otherwise. If one is

liable to pay the levy because of engaging in a particular activity, then the levy, expressed in cash, is an opportunity cost of

engaging in this activity: it is a good (cash) whose alternative uses are foregone. This is avoidable only by avoiding the activity

identified in the Act of 2010.

I regard as a matter of the greatest significance the statement on behalf of the Regulator that VAT or excise duty on the cost of fuel

is permitted to be “bidded-in” although it is proposed that the levy should not be. I can see no basis on which this distinction can be

drawn. Certainly, this information seems to fatal to the contention that the levy cannot be recovered because it is not an input into

the process of generation. It appears to me that it is obviously an input, or not an input, to precisely the same extent that VAT or

excise duty is.

Manifestly neither the levy nor the cash used to pay can itself be physically used to generate electricity. Nor can the VAT or excise

duty, or the cash used to pay either of them be so used. But if the latter is a biddable in cost it can only be on the basis that it is an

unavoidable consequence of using fuel for electricity generation. To precisely the same extent, neither more nor less, is the levy a

biddable in cost. Moreover, it is clear from the terms of s.40D, quoted above, that it is a cost which is directly and in a linear way

related to emissions. It is therefore a marginal cost. When applied to the period described as a “trading day” which is the period of

time the licence envisages, it is a short-run marginal cost. Moreover, it is a legally unavoidable short-run marginal cost.

The terms of the licence.

Putting the above conclusions in terms of the licence, it follows from what has already been held that the levy is a cost of generation

and, having regard to the manner in which it accumulates, proportionate to Emissions, over a “levy period” it is a short-run marginal

cost of generation. It is therefore, inescapably, a part of the “total costs” referred to at Condition 15(3)(a) of the licence.

This arises as follows:

By virtue of the preceding paragraphs of Condition 15, the generator:

(1) “shall ensure that the price component of all commercial offer data… in relation to a generation unit… are cost

reflective.”

The following subsection provides, insofar as relevant:

(2) “For the purposes of this Condition, the price component of any commercial offer data shall be treated as cost

reflective only if, in relation to each relevant generation unit, the Schedule Production Cost related to that unit in respect

of the trading day to which the commercial offer data is submitted… is equal to the short-run marginal cost related to

that generation unit in respect of that trading day.”

The following paragraph, 15(3) requires the short-run marginal cost to be calculated as para. (3):

“The total costs attributable to the ownership operation and maintenance of that generation unit during that

Trading Day…”.

We have already seen the unsurprising ordinary and natural meaning of the word “total”. I do not believe the respondents’ case is

consistent with this meaning. Nor do I believe it is consistent with the view that VAT and excise duties are properly “biddable in” but

the levy is not.

I agree with the submission of Mr. Maurice Collins that the concession that VAT and excise duties were properly biddable in, is fatal to

the respondents’ case.

The BCOP

The first thing to be said about the BCOP is that it is constituted by the licence. At para. 15(5) we read that:

“The Commission may publish … a Commission to be known as the Bidding Code of Practice…”.

Accordingly, in relation to the terms of the licence and the BCOP one must first note the primacy of the licence. It contains the

provision just quoted authorising the issue of the BCOP. It goes on to define what the BCOP may contain. The BCOP, therefore, is a

document derivative from the licence and whose scope is defined by the licence.

The licence first establishes the obligation of cost reflectiveness and the obligation to quantify one short-run marginal cost in terms of

“total costs”.

Having done this the licence then goes on to permit the creation of the BCOP for the following purposes:

(a) Defining the term Opportunity Cost,

(b) Making provision, in respect of the calculation by the licensee and other generators of the Opportunity Cost and specified cost

items for the treatment of

(i) The cost of fuel used by generators in the generation of electricity.

(ii) The value to be attributed to credits under the Emissions Trading Scheme established by the European Commission;

(iii) Variable operational and maintenance costs;

(iv) Start up and no load costs;

(v) Any other costs attributable to the generation of electricity,

(c) Setting out such other principles of good market behaviour as in the opinion of the Commission should be observed by the licensee

and other generators in carrying out the activity to which paragraph (1) relates.

It will be noted that BCOP is not permitted to derogate from the requirements of cost reflectiveness, or the requirement to calculate

short-run marginal cost by reference to “total costs”.

Paragraph 6ff of the Bidding Code of Practice appears to me to be concerned with matters of calculation and not of the exclusion of

any item from the category of “total costs”.

Paragraph 6 of BCOP commences by providing that “when calculating the short-run marginal cost of a generation set… constituent

cost items are to be valued at their opportunity cost…”.

Paragraph 7 says that the opportunity cost shall comprise the value “of the benefit foregone” by a generator in employing that cost

item for the purpose of electricity generation. This is to be done “by reference to the most valuable realisable alternative use of that

cost item for purposes other than electricity generation”.

This paragraph, again, does not appear to me to exclude any item from the category of “total costs”. It further appears to me to be

perfectly consistent with the valuation of a cash cost. Its “most valuable realisable alternative use” is manifestly its cash value in the

hands of its owner.

Paragraph 8 of the BCOP provides method of calculating the value of a benefit foregone, and talks in terms of market price, where

there is a market in the item in question, or the costs of replacing it where there is not.

This provision, which is entirely related to calculation, and which applies unless there is “good cause not” to employ it, appears to be

redundant in the case of a cash levy, whose computation is provided in the Act of 2010.

It therefore appears that the appellants are not merely entitled but are obliged to make sure that the offer price which they make to

the Regulator is equal to their short-run marginal costs of generation. They are required, more generally, to ensure that the price at

which they “bid in” reflect their costs. That is, it is not lawful for an operator in this market to engage in below costs selling, or to

exclude any actual costs from the category of “total costs”.

It is important to realise that this is not a decision of the electricity generators but a requirement of the Single Electricity Market. In

this appeal it was common case that when, as the result of an E.U. decision, a percentage of emission allowances were allocated free

to electricity generators, they were obliged to “bid in” a price for these free allowances being the price at which the allowances they

had to pay for were actually available. This, again, was not a choice of the generators but a requirement to which they were subject.

See, for example, para. 17 of the submissions on behalf of the Attorney General in this case.

It therefore appears, firstly, that even when carbon allowances, or some carbon allowances, were available free to generators as a

result of an E.U. decision, operators of generation plants were required to “bid in” their cost at the then market price. Secondly, it will

be recalled that taxes on physical inputs, such as VAT and excise duty were required to be treated as a cost and were bidded in. It

therefore appears that the respondent itself has insisted upon ascribing a cost to an input which was in fact received free and that it

required the inclusion as a cost, of VAT or excise duty on a physical input. This approach seems to me quite inconsistent with

excluding the levy brought into being by the Act of 2010 from the category of a cost, and therefore a component part of “total

costs”.

It will be recalled from the summary offered above of the argument of Mr. Michael Collins that he does not deny that the levy is in

some sense a cost. But, for the purpose of this case, he dismissed the sense in which the levy could be said to be a cost as being

merely the “Clapham omnibus” sense and the “Profit and Loss Account” sense.

In my view, where a word is not specifically defined by the legislator or by agreement, words are to be read in their ordinary and

natural meaning, that is, the sense in which “the man on the Clapham omnibus”, or the person preparing a Profit and Loss Account,

would read them. Where a word is not defined, such as “cost” as in the present example, it is to be read in this sense, and I have set

out above the content of this reading.

I am somewhat puzzled as to why Mr. Collins denounced the alternative meaning to that for which he was contending as being merely

“a Clapham omnibus” sense. The phrase “the man in the Clapham omnibus” was originally the creation of the distinguished 19th

century jurist and aphorist, Lord Bowen. He is credited as the author of the phrase in a case called McQuire v. Western Morning News

Company Ltd. [1903] 2KB 101, but I cannot find the original use. However, in Hall v. Brooklands Racing Clubs [1931] KB 205, Lord

Justice Greer used the phrase in what I am sure is its correct sense. This was an action against the proprietors of a motor race track

for personal injuries sustained when the cars that were racing left the track and struck the plaintiff. Lord Justice Greer referred to

“what any reasonable member of the public must have intended should be the terms of the contract”.

He continued:

“The person concerned is sometimes described as ‘the man in the street’ or ‘the man in the Clapham

omnibus’.”

The learned Lord Justice went on to say:

“Such a man, taking a ticket to see a cricket match at Lords would know quite well that he was not going to

be encased in a steel frame which would protect him from the one in a million chance of a cricket ball dropping

on his head… in the same way such a man taking a ticket to see motor races would know quite well that no

barrier would be provided which would be sufficient to protect him in the possible but highly improbable event

of a car charging the barrier and getting through to the spectators”.

In my view, it is precisely the man in the Clapham omnibus or (as Mr. Justice Walsh adapted the phrase) the man (or woman) in the

Crumlin omnibus whose ordinary and natural use of language is in question, in the absence of a clear special meaning. I cannot see

this usage is of assistance to the respondents’ case. I think that “total costs” includes all costs, each and every cost item. I think

this is the sense in which the word would be read by the man on the Clapham omnibus, the man on the Crumlin omnibus, or any

reasonable person. I do not think that the provisions of BCOP are authorised or intended to take from this generality. I think that they

are directed at the calculation or quantification of biddable in cost items, but are not directed to assessing or defining items out of

the “total costs” category. I believe that the levy has an opportunity cost, and that is the amount of its cash value. I note that Mr.

Michael Collins conceded that the cash to pay the levy has an opportunity cost, and I do not accept, for the reasons given above,

the metaphysical distinctions drawn between the levy itself and the cash used to pay the levy, that is the cash value of the levy.

The felt need to draw this distinction is suggestive.

I consider that the levy is “employed” as an “input” in the generation of electricity to precisely the same extent, neither more nor

less, than is the VAT or excise duty on fuel when so used.

No Statutory provision.

As we have seen above, the Attorney General’s written submissions raise the question:

“If this was the Oireachtas’s intention, why did it not choose a different course of action?”

The answer given by the Attorney General was:

“The Bidding Code of Practice applies to the Single Electricity Market. This is a multi-jurisdictional market

which the Oireachtas cannot regulate by unilateral means”.

The whole of this submission is set out above.

This seems to me to be an extraordinarily important statement. It is stated, by the Attorney General, that the Oireachtas could not

by legislation effect what is desired to effect here, the creation of a non-biddable in levy which therefore does not “pass through”, in

industry language, to the market, because the market from which revenue is drawn is a multi-jurisdictional one, part of which is

outside the jurisdiction of the Oireachtas.

Given that the Oireachtas could not, in the Attorney General’s view, achieve this purpose, it would be extraordinarily fortunate (to

say the least of it) if the terms of a licence and a bidding code which predate the levy by a period of years could achieve precisely

that purpose. Since the levy did not exist at the time the licence and the bidding code were created, it would seem to follow that if

they do have the effect claimed, they have it by accident, co-incidence, happenstance or some process of that kind since it could

not have been by intention.

I do not regard this aspect as critical, but it fortifies me in the construction of the licence and the Bidding Code of Practice at which I

have arrived.

Revenue raising legislation falls to be interpreted in the light of the substantive nature and effect or impact of the measure and not

simply by reference to its form or any statutory means devised for the purpose of its calculation or for the purpose of determining the

point or the manner at which a tax or levy impacts on the revenue of the tax or levy payer.

Conclusion.

I would quash the directives of the Commission for Energy Regulation prohibiting the levy from being “bidded-in” and thereby allow the

appeal.